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Rackspace swallows Slicehost Jungle

Hosting acquisitions partly cloudy

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Rackspace Hosting - which is where the files that comprise The Register are stored - this week made two acquisitions to beef up its hosting business. The company, which went public in mid-August, is also re-branding its hosting and cloud computing products to make their naming consistent in the wake of the acquisitions.

Rackspace raised over $100m when it went public and that means it can make some strategic acquisitions. The crashing economy probably means that it can buy startups on the cheap too, since venture capital and credit are not flowing around as they did even a year ago.

The first company that Rackspace bought this week is called Slicehost, a rival hosting provider that sells virtual machine server slices. Rackspace also acquired Jungle Disk, another startup that sells virtual online disk drives that actually host data on Amazon's S3 storage utility, the storage companion to Amazon's Elastic Compute Cloud utility.

Based in St Louis, Missouri, Slicehost is a hosting company that sells virtual machine slices based on x64 iron running the open source Xen hypervisor. Specifically, the server infrastructure is based on quad-core processors with RAID 10 disk arrays with a Gigabit Ethernet backbone. (RAID 10 means that the arrays use a combination of striping and mirroring.)

To date, Slicehost has sold over 15,000 VM slices to customers. Slicehost is one of a myriad of managed hosting suppliers that has expanded out to offer more virtualized IT infrastructure, but thus far it has been limited to Ubuntu, Debian, Gentoo, Fedora, and CentOS Linuxes. There is no technical reason why the same approach cannot be used to support Windows or BSD Unix, but there may be economic reasons for sticking to a few Linux distros and not going broke trying to support Windows newbies.

The Jungle Disk acquisition, also announced this week, will allow Rackspace to push services to a broad end user market and possibly offer more sophisticated virtual storage to enterprise customers at some point. Jungle Disk is a virtual network drive that is created through software that links a desktop PC with Amazon's S3 service.

As far as you know, you are talking to a disk drive, but data is being stored and backed up on the Amazon cloud. Back in mid-August, Jungle Disk announced a Workgroup Edition, which allows multiple users to share a single Jungle Disk on the network for a $2 per month fee to Jungle Disk plus the 15 cents per GB per month fee that Amazon charges for S3 disk capacity. Jungle Disk can be used with Windows, Linux, and Mac OS X desktops and servers.

The two acquisitions used up $11.5m in Rackspace cash and stock. The company may have to make up to $16.5m in additional payments if these businesses meet revenue targets.

In the wake of the acquisitions, Rackspace has cleaned house a bit on its product names. The company's Hosting Cloud, its flagship cloud computing offering created by Mosso, its cloud computing division, is now simply called Cloud Sites. The company's CloudFS cloud-based file system is now called Cloud Files, and the company says that later this year the Jungle Disk product will be ported from Amazon's S3 utility to Rackspace's own Cloud Files service. (This also sells capacity for 15 cents per GB per month). Rackspace's on-demand, virtual server capacity is now called Cloud Servers, and this is based on the Slicehost products just acquired.

The uncertainty in the stock and credit markets may have compelled the owners of Slicehost and Jungle Disk to sell to Rackspace, but it has also put pressure on Rackspace too. The company decided on October 10 to draw an additional $150m on its revolving line of credit, which is backed by Comerica Bank, JPMorgan Chase, Wachovia Bank, Bank of America, and the Frost National Bank.

Rackspace has been profitable in the past five and a half years for which financial data is available and has grown smartly from $56.6m in sales in 2003 to $362m in 2007. Profits were under pressure in 2007, but it still brought $17.8m to the bottom line, and in the six months through June 30, Rackspace has booked $250.4m in sales and $9.6m in profits. ®

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